3% Return per month

[handyandy]

Outstanding contribution Darren. I really appreciate the quality of your reply. I hope you and Ker get comfortable on Somersoft.

Hear, hear well done Darren. You have certainly highlighted the fact that you don't rush into these things without having your eyes wide open.

Tfb seems somewhat confused as to how many people you are, maybe its just the amount of typing you have done. Or maybe he meant you and grossreal????

Cheers

 

[thefirstbruce]

hehehe, thanks andy. I did mean grossreal....I am multitasking here you see...

 

[Aceyducey]

I'd only consider it with a first mortgage over the developer's house.

But frankly the return isn't good enough.

Cheers,

Aceyducey

 

[grossreal]

hi all
simon I got involved because I used this type of lending and found that it was very profitable for the lender so I started to get involved and was invited to join this group.
as for flimsy not really as we don't lend unless we have another property or business other then the one we are lending on so its basicly two properties that are on the line so we are cover from that point of view.
I do eye ball each and every lend and if
I don't feel comfortable I don't lend, I have one I have the coin in the air on at the moment and thats a val of 1.5 mil Aust in malta currently has 700k aust and needs 600k Aust to finish reno with a contract of sale at 1.5 mil Aust signed by purchaser and its 5% per month o/s deal with caveat on Aust unencombent 500k property, haven't decided yet they have been ring me for the last 5 days and sent me all details.
I haven't had one of mine go to a liquidator or administrator as I must have a very clear exit strategy and if there isn't one, I make one and if it still doesn't look good the bin is the next step.
I am doing them more currently to assist builders get the finance to start a project rarther then getting them out of trouble.
what they call hurt money is the part that builders have trouble finding especially if banks wont lend at the start so I get that organised with caveat lending as it doesn't show up on any spread sheets as its one on one lending so for all intense and purpose it the builders money(cost about $70.00 for the caveat) and I get a signed 2nd mortgage but don't exicute unless we have a problem which is very rare at the start of a project.
so when the bank say you need to have 1 mil in this project to start as this is your contribution, then caveat comes in and is then drawn out in the draw downs.
same as a equity or cash investor mule except it gets paid out within 3 months of the start and usually I take a position within the project for putting it all together.
I get 11% on my money and 5 to 10% of profit at the end.
as for legals, with my building one don't have much problems with legal ( and is more profitable for me)but the others I leave to the solicitors to chase and they don't charge me their costs, as I am lending to them and they are lending to their customer and they chase there customer.
for this type of lending there is never to much money and if I was mr packer I would still run out of cash flow, so you time your deals and you are forever moving money from one account to another, it is a very cashflow control market and I never, ever, ever, lend to family or friends, I have had two business associates that wanted this type of lend and sent both throw the group with the understanding that I would not be lending on either so there is no oh we can't exit can we have a couple more days, as days are money with this type of lending.

 

[grossreal]

hi all
while we are on the subject of this type of lend what would you think of this type of loan and would there be a market for it.
investor a has 45k and finds a property that needs a reno.
investor b caveats property lends the money to a to buy property.
investor a renos property with the 45k and puts it on the markets as its his/her ppor and there is no mortgages on the property.
buyer c comes in and buys renoed property and settles thru investor b solicitor
solicitor then distributes funds as money back to investorb with interest and then rest back to investor a less all costs.
this is all done within 4 months and no mortgages have done except buyer c and the one that was bought.
interested in who would take this if offered, maybe this should be in the main section and if need be can post it there its not on offer currently.
but ha if there is interest it could be.

 

[Kennethkohsg]

Dear Alex Lee,

1. Very well said indeed!

2. You have well presented the real risks to the potential investors.

3. If the banks won't lend the monies to the developer, they are in effect saying that they are not comfortable with certain aspects of the development or/and about the developer himself or/and his/her property development company's isn't it? This is despite its previous loan to the same developer.

4. If the lending instituation are having second thoughts about helping the developer complete the development at this stage of the game, shouldn't we then be more cautious, discerning and wary of the developer or/and his/her proposition instead?

5. In my mind, any "trustworthy" developer worth his/her own integrity and truly going for a win-win positive outcome with the potential investors, would honestly and openly disclose his/her present situation if he/she sincerely is looking for some form of financial assistance to help him/her complete the development project.

6. By not being truthful and honest with his/her potential investors about the current situation and business risks involved, how then can we trust him/her?

7. Consequently, I would personally think that the biggest risk is the developer's own personal integrity and reliability and that no real "win-win" situation is likely to result as a positive outcome for all parties concerned.

8. Consequently, it does not truly matters how attractive the deal may appear to me on the outset, I will simply not invest. This is becuase the biggest and real risk is trusting the "wrong" person and losing all my monies, in the moment of greed.

9. For your kind update and due consideratrions, please.

10. Thank you.


regards,
Kenneth KOH

 

[simonjulie]

Hi Grossreal
Thanks for sharing your answer. It has opened my mind another notch.
In regard to your last post.
IMHO,Renovating and selling in the same market using the kind of reno that 45K would produce may be a bit too much of a risk to the investor in regard to getting your money back. Stamp duty on the sale alone is a big drain on future profits. But I know there would be 101 dumb ones out there who would stand in line with $$$ signs in their eyes ready to lose their money.
Any thoughts
Simon

 

[lizzie]

i do know a young guy who had lent money to developers on occasion and made very very good returns ... but it was to risky for my liking so, even tho he did well, i felt more comfortable to pass it up and have never regretted it.

 

[alexlee]

Lizzie, did your friend ever get burned when a builder went belly up or there were issues with completing the project? Also, did your friend lend during hot cycles only? I would imagine the risks are much greater in a crash situation. I remember seeing a few ads in the papers about 'development site for sale - builder desperate' and things like that.
Alex

 

[lizzie]

last time i saw him was two years ago, so don't know if he got burned in the downturn ... he made very very good returns during the boom, but, as i said it was to risky for my taste - and still is.

although i do note a "professional" developer who lives down the road is having a fire sale of his holding stock ... i don't really know him but suspect he got caught good and proper.

 

[grossreal]

hi simon
depends the project and if its there ppor and the return is there then stamp duty is a cost but depends the returns there are areas out there that have very good returns on reno's just have to know your market.
I own not only [email protected] but also caveatlending.com and I am working on a new web site this is not an advertisment just for information.
these types of reno and more the quick turn over site they are not very common at the moment and I was just putting it out for discussion if you thought you would use it. The caveat backed by 66.79 gross realisation lend is not only a possiblility it is being used currently and althou it is at its fledgling stage, can work out to be very beneficial to a developer and if you work back on a development deal you will understand why it should be the case.
example
a 10,000,000 gross real site (20 x 500k units)
take away 21% profit margin (should be or you shouldn't be doing the project) =790,000
take away gst = 711,000
take away sellers margin =7038900
take away 5% contingency= 6686955
now take 66.79% gross realisation lend from the 10,000,000=667900
so if the site does meet a 21% return then it should pass as a grossrealisation lend the only trouble is the tha lender will only pay 66.79% of the land value at the start of the project and you need to come up with the difference and thats when caveat lending comes and is covered by the gross realisation lend.
hope this explains it.

 

[Les]

G'day Grossreal,

a 10,000,000 gross real site (20 x 500k units)
take away 21% profit margin (should be or you shouldn't be doing the project) =790,000

Isn't this, in fact, a 26.5% profit?

Regards,

 

[grossreal]

Hi Les
Not sure where you get the 26.5% profit, the 3% is a 26% profit per annum.
The example is just to explain that most construction loans as a min could or should be done as gross realisation lends the only reason that they are not popular is that you have to put more money out at the start but because of funding restraints the developments don't get off the ground, this is a way of getting then to get going.
Its not for everyone and they never are.
I look for niche markets and this is a niche and we fill a gap that can't be filled by normal lending.
Yes we are expensive but its not a banks money thats on the line its our own,

 

[Les]

G'day Grossreal,

a 10,000,000 gross real site (20 x 500k units)
take away 21% profit margin (should be or you shouldn't be doing the project) =790,000

Actually, in answering, I'm more confused than ever. Initially, I'd overlooked the "extra zero" that was missing. So, I took your figures (most of them) on face value.

i.e. I read that you were making $210k profit leaving $790k as outstanding (and you commented re "better be making 21%....")

Now, on a re-read, I see an initial $10m gross real - and, all of a sudden, nothing works..... So, forget my original comment, but please answer this:-

Is your original $10m for the site correct? If it is, do the following figures still fit correctly, or are they missing a zero? e.g. Take 21% off $10m, you end up with $7.9m, not $790k.

Am I right (above)? Or am I still missing something?

Regards,

 

[grossreal]

yes les
should be sorry 7.9 mil
because I do it in my head and as a quick check to see if a project works out you become do make these slips on paper lucky for me I certainly don't when a deal is involved but it is an example and its only to explain why a gross realisation lend should be able to be achieved by most developers usually its not and the reason its not is because they don't have the 21% min profit margin some are down to 15% well I don't even look at them asd you get a 10% increase or blow out and your dead, if I get a 10% I still got 11% profit and I got a lend at 21% from most lenders as a gross realisation lend.
maybe I might send a spread sheet and put it in general section and anyone can upload it will be like a chef this is one I did before and put a old spread sheet so you can see how a gross realisation lend works for those who don't know and what is required it may explain it easier as its a bit off this posts subject.

This post was asking about 3% caveat lending and as I own caveatlending.com thought I may shead a bit of light on the subject.
I have a few others also that may popup now and again in my little investing box of toys.

 

[thefirstbruce]

Grossreal, thanks for your contributions. I'd be very interested in seeing your feasibility spreadsheet when you get it up.

And I don't mean to criticize, but you lose me with your grammar sometimes. I am pretty good following quick concise thoughts, but you are too quick and concise.

 

[grossreal]

sorry about that and you are not the first to tell me.
I am one of those in a hurry and don't worry that much about grammer people I run two mobiles and have two computers on my desk and try to multi task them all and grammer yes is good to gain a very clear understanding but at 45. I think the grammer boat sailed some time ago.
we all have our little nicks in our armour and thats mine oh and always being right or if wrong still have the thought of being right, is my other.
even tried to do it inword and then cut and paste but by the time I start doing that somethings else comes along and then I would never post.
I have a very short time time currently running at 5 years when all my kids will be out of school then the shutters go down on my investing and my sons will take over and I will have a look at the parts of the world I haven't already seen.
so for those who have a problem with my grammer in advance I can say sorry and hope you can understand it enough to gain information from my posts.
most of my sheet are not confidential in any way and have been drawn up and used by me.
There are new investment opportunities around every corner you just must keep your eyes open and don't close them or let them fog over just because the words hedge fund,syndication,mezzanine fund,seed capital,networth lending or similar are used.
get into the nitty gritty of the project and see what is on offer.
as you can see sorry but in my world, grammer is not a pre requistite for success being a sharp pen is.

 

[thefirstbruce]

Gross, totally agree grammar is not that important to be successful. In fact, a high % of the ppl I know who have made it big are in a hurry and don't sweat the detail, as well as having dyslexia etc. A lot of finance guys I know are poor with english but outstanding with maths.

I have been involved with seed capital and mezz a couple of times, and got burnt badly the last time. I learnt big from that, and would like to learn more, as I know there are win wins in there, if you know what you are doing.

I don't have a solid background in finance industry though, and feel that gives a big advantage. I feel a lot of ppl could learn a lot from you and hope you can throw a few pearls at the forum. I know a few ppl who have been burnt now from investing in mezz and I don't think their advisors (accts, solicitors) are informed enough either.

 

[Les]

G'day Grossreal,

And thanks for the clarification. OK - back on track. My initial point (about a 26.5% profit) was simply this :-

Since your costs all up are $7.9m, for a $10m deal, then the $2.1m profit (against the $7.9m cost) is, in reality, a 26.5% profit.

You seem to do this in reverse (probably simpler, and adds a bit of padding anyway) and you take 21% OFF the final Sales figure - so, you subtract $2.1m from the total Sales to arrive at what SHOULD be your total cost ($7.9m).

My post was to help ME understand just what you were doing. I think I now understand - and, as tfb said, this is an area that is of quite some interest, so thanks for putting it out there,

Regards,

 

[grossreal]

hi all
yes the example was to explain that all my deals have this profit margin as a min requirement.
thefirstbruce
lots of people get burnt thats why its called learning the best way to keep kids away from flames is to put there hand close to it and they won't do it again.
with risk also comes gains usually and you have to judge if you want to take that risk.
I have had a meeting today with three chinese two of which don't speak a word of english so we use drawings to explain and mr liang writes what each is so they understand, it is relatively easy when you do it all the time they are looking at comming in as investors out of china for developments here.
its lots of fun dealing with these groups.
money is no object but yet cents is what they work off and when the deal is right the money flows.
mezz funding, caveat lending,hedge funds, and seed capital to start funds.
are areas that if you don't have a good grasp of finance and how or who to organise it with then I would take a very long berth of it or get involved with a group that specialises in it and learn from there.yes they are very profitable
all p/a
mezz runs at around 25%,
caveat 36%,
hedge funds around 41%,
seed to start funds around 60% and higher depending on the fund and who is kicking it off.
but the further up the tree you go the higher the risk, that the hedge fund won't get up and run or the fund you are seeding does get enough interest and folds and the setup cost comes out of your cash.
its not as easy as lending 100k 3% per month and no risk with 9 k after 3 months and my 100k back thats the good bit,
the not so good is the guy who takes your 100k on a property 600k that he has lent 10 lots of 100k, has a first and second mortgage on the place with two different banks and has it crossed against a loan for his bmw to esanda and there is no guy and no car and your tring and get your 100k back.
and if you think the above would be a joke sorry it happens and they are the ones chasing 6 and 7 % interest per month and it is easy as the caveats go on after the lends so if you look its got a 1st and 2nd mortgage on as the caveat takes two to three days to show up and if timed right they go on consecativly and your gone.
because our caveats only cover second properties plus the first we don't get these problems, we also don't get the sh-- as they can't meet the requirements.
also most of the above you are not allowed to advertise as it is seen as investing so non of the above is to be taken as investment information.
I am a very small fish in this market and take little nibbles not even bites at the crumbs that the other boys drop but they can be very profitable bites all the same.